What is Guaranteed Death Sum Assured in Life Insurance?

The "Guaranteed Death Benefit" is often found in Life Insurance Policies and Annuity contracts. It guarantees that a minimum amount will be paid to your beneficiaries in the unfortunate event of the policyholder’s demise, regardless of the policy's cash value or market performance.

This benefit is meant to provide financial security for your loved ones, ensuring they receive a fixed sum, no matter what happens with the policy's investments. It provides peace of mind, knowing your beneficiaries will have a safety net, no matter the circumstances. It’s an important aspect of retirement income planning, helping secure your family’s financial future.

Understanding Guaranteed Death Sum Assured

Definition of Guaranteed Death Sum Assured

As we said before, Guaranteed Death Sum Assured refers to the minimum amount a Life Insurance Policy guarantees to pay out to the beneficiaries upon the death of the insured, provided the policy is active. Unlike some policies that might vary in payout depending on investment performance or other factors, the guaranteed death sum assured provides financial security for the policyholders and their families.

This feature is necessary within the Life Insurance framework as it ensures that, irrespective of market shifts, the beneficiaries will receive a predetermined sum designed to provide long-term stability after the unfortunate occurrence of the policyholder’s death. This protects the beneficiaries from unexpected financial burdens, ensuring they have enough to cover living expenses, debt, or education costs.

Imagine you have a Life Insurance Policy that guarantees a payout to the dependent family members or nominees if something happens to the policyholder. Let’s say the guaranteed amount is INR 10,00,000. No matter what happens with the policy's investments or changes in the market, the policyholder’s nominated beneficiaries will receive that INR 10,00,000. This ensures they’ll have financial security to cover important expenses, like bills or education, during a tough time.

Importance of Guaranteed Death Sum Assured

The guaranteed death sum assured is not merely a technical term but a vital safety net for families. Here are several reasons why this feature is indispensable:

• Supplementing Retirement Income: The guaranteed death sum can act as an additional source of income for beneficiaries, providing them with a financial foundation to manage living expenses in retirement. This can be especially important for families relying on a single income source.
• Asset Protection: Individuals often seek to safeguard their savings and investments during retirement. A Life Insurance Policy with a guaranteed death sum assured can protect these assets, ensuring they can be passed down to legal heirs without being diminished by debts or other financial obligations.
• Enhancing Financial Planning: Integrating Life Insurance into retirement strategies allows policyholders to manage their finances better. It can help reach overall financial goals, as the guaranteed death benefit provides security, enabling retirees to draw down their savings more confidently.
• Risk Tolerance Consideration: Understanding personal risk tolerance is important in retirement planning. The guaranteed sum can provide a safety buffer, allowing retirees to engage in more investment strategies with their remaining assets, knowing their family’s financial future is secured.

How Guaranteed Death Sum Assured Works

Understanding how guaranteed death sum assured works involves grasping how it is calculated and paid out. 

Here’s what you need to know:

• Base Sum Assured

This is the core amount you choose when you purchase the policy. It’s the minimum guaranteed payout your beneficiaries will receive upon your death. 

• Policy Type and Riders

The type of policy you choose and any additional riders (like accidental death benefit or critical illness cover) can influence the guaranteed death benefit.

• Policy Duration and Premiums

The length of your policy and your premiums also play a role. Higher premiums or longer terms may result in a higher guaranteed death benefit.

• Adjustments for Loans or Withdrawals

If you’ve taken a loan against your policy or made partial withdrawals (in the case of certain policies like ULIPs or endowment plans), the guaranteed death benefit may be reduced.

Let’s say you purchase a Term Insurance Policy with a base sum assured of INR 1 crore for a 20-year term. Then,

• Base Sum Assured: INR 1 crore (guaranteed).
• Riders: You add an accidental death benefit rider for an additional INR 50 lakhs.
• Total Guaranteed Death Benefit: INR 1.5 crore (INR 1 crore + INR 50 lakhs).

Mechanism of Guaranteed Death Sum Assured

In case of the unfortunate event of the policyholder’s passing, the payment process generally unfolds as follows:

1. Claim Initiation: The beneficiaries or designated claimants must inform Shriram Life Insurance about the policyholder’s passing and submit the necessary documents, including the required certificate.
2. Verification Process: Shriram Life Insurance will verify the claim by reviewing the submitted documents and the terms outlined in the policy.
3. Payout: Once the claim is approved, Shriram Life Insurance will disburse the guaranteed sum assured, either as a lump sum or through a structured payout plan, based on the policy provisions and the beneficiaries’ preferences.

Types of Life Insurance Policies Providing Guaranteed Death Sum Assured

Factors Affecting Guaranteed Death Sum Assured

Understanding the factors influencing the Guaranteed Death Sum Assured in life insurance policies is essential for tailoring coverage to your financial goals. 

Key elements include:

Policy Terms and Conditions

The policy term refers to the duration your insurance coverage remains active, while the premium-paying term is when you pay premiums. These terms significantly impact the sum assured. A longer policy term extends coverage, ensuring beneficiaries receive the sum assured over an extended period. Likewise, opting for a limited premium-paying term means you pay premiums for a shorter duration, which can result in a higher sum assured compared to paying premiums over the entire policy term.

Premium Payment Options

The method and frequency of premium payments also affect the sum assured:

• Single Premium Payment: Paying the entire premium upfront can lead to a higher sum assured, as the insurer receives the full amount immediately, allowing for greater investment potential.
• Regular Premium Payments: Choosing between monthly, quarterly, or annual payments can influence the total premium amount and, consequently, the sum assured. Annual payments provide discounts, potentially increasing the sum assured for the same premium.

 Benefits of Guaranteed Death Sum Assured

• Financial Security: The primary purpose of Life Insurance is to provide financial protection. The guaranteed death sum assured ensures the family has financial resources to support their needs without the policyholder.
• Peace of Mind: Knowing that their loved ones will receive a fixed sum upon their death, policyholders can have peace of mind, allowing them to live without anxiety about their family’s financial future.
• Legacy Planning: It plays a significant role in legacy planning, enabling policyholders to leave behind a financial cushion for their heirs, making it easier for them to manage expenses related to education, housing, and other essential needs.
• Tax benefits: Under Section 80C of the Income Tax Act, the premiums you pay towards your Life Insurance Policy are eligible for tax deductions, up to a maximum of INR 1.5 lakh per financial year. The death benefit received by your beneficiaries is completely tax-free under Section 10(10D) of the Income Tax Act. Maturity benefits are also tax-exempt under Section 10(10D).

Conclusion

The guaranteed death sum assured is a cornerstone of life insurance products and holistic financial planning. This financial tool provides a safety net in times of tragedy and facilitates long-term financial stability through strategy integration, risk management, and tax benefits. 

Shriram Life Assured Income Plan (UIN: 128N053V05) is designed to meet your financial goals, providing a structured approach to savings and a reliable income stream for your retirement, ensuring peace of mind and security for your future.